Edited version of private advice

Authorisation Number: 1052395684841

Date of advice: 13 May 2025

Ruling

Subject: Deceased estates - Commissioner's discretion

Question 1

Will the Commissioner exercise the discretion under section 118-195 of Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time for you to dispose of your ownership interest in the dwelling located at Property A and disregard the capital gain or capital loss you made on the disposal?

Answer 1

No.

Question 2

Will the Commissioner exercise the discretion under section 118-195 of ITAA 1997 to allow an extension of time for you to dispose of your ownership interest in the dwelling located at Property B and disregard the capital gain or capital loss you made on the disposal?

Answer 2

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

Prior to 20 September 1985, the deceased and their late spouse jointly purchased the dwelling at Property A.

Prior to 20 September 1985, the deceased and their late spouse jointly purchased the dwelling at Property B.

Each property size is less than 2 hectares.

On XX XXXX 20XX, the deceased's spouse passed away, and the deceased received sole ownership interest of both properties.

The deceased lived alone in Property A as their main residence.

Until around 20XX, the Property B was used as a rental property.

From 20XX to XX XXXX 20XX, Property B remained vacant.

On XX XXXX 20XX, the deceased executed their last Will and testament appointing their X children as executors (the executors):

•                     Person A

•                     Person B

•                     Person C.

Under the Will, the deceased gave their whole estate to their Trustees upon trust as follows:

•                     XX% for those of their grandchildren and great grandchildren living at the date of their death, and if more than one in equal shares in tenants in common.

•                     XX% (being the remainder) to their children who survive them and if more than one in equal shares as tenants in common.

On XX XXXX 20XX, Person A began treatment for a medical condition.

On XX XXXX 20XX, the deceased passed.

Both properties remained vacant until sold. Except for the executors occasionally staying in the Property B while preparing both properties for sale. Property B was used by the executors as short-term accommodation when visiting Property A until it was ready for sale

No repairs or improvements were made to the properties.

The deceased was a hoarder and used both properties to store several items. Items were stacked limiting safe access in most rooms.

In XXXX 20XX, the executors began the process of clearing out the properties with the collection of waste and rubbish. Property A required the most work due to the accumulated material stored everywhere.

One of the rooms in Property B was unfurnished and empty while the remainder of the property required removal of the items hoarded.

On XX XXXX 20XX, Person A underwent surgical treatment for a medical condition. Following this they required treatments and regular consultations with their specialist for some months.

The executors did not live near the properties. The following is the approximate car travel time from the properties:

•                     Person A approximately over X hours.

•                     Person B approximately X hours.

•                     Person C approximately X hours.

Person B estimates that around XX kms were driven by the executors during the process of clearing the properties.

You did not hire anyone externally to assist you in cleaning or clearing the properties.

On XX XXXX 20XX, the executors applied for the grant of probate.

In 20XX, the following Sate COVID-19 lockdowns affected your ability to travel and progress preparing the properties for sale:

•                     Lockdown 1

•                     Lockdown 2

•                     Lockdown 3

•                     Lockdown 4

In or around XXXX 20XX, the executors removed the bulk of the rubbish from the properties. Sorting of the contents continued into mid-20XX.

On XX XXXX 20XX, the executors were granted probate.

On XX XXXX 20XX, the executors contacted a real estate agent to sell the properties. The real estate agent inspected both properties.

In or around XXXX to XXXX 20XX, the real estate agent advised the executors to list both properties for sale at the same time. This was because they are adjoining properties with a shared boundary. The agent believed that listing them together could interest a property developer requiring a larger area of land for a knock down and rebuild development.

On XX XXXX 20XX, the executors received a valuation report for the market value of both properties.

On XX XXXX 20XX, Person B underwent emergency surgery. Consequently, they were unable to perform many of the activities associated with clearing the properties until XX XXXX 20XX.

On XX XXXX 20XX, the real estate agent inspected both properties again.

On XX XXXX 20XX, Person B's spouse's parent died.

In XXXX 20XX, due to their parent's passing, Person B's spouse resigned from work so that they could clean, maintain and prepare their late parent's property for sale. This took until XX XXXX 20XX.

Person B is the full-time carer for their adult child who has a medical condition. During Person B's spouse's absences, Person B had limited opportunity to attend the property as their spouse was not available to care for their child.

In XXXX and XXXX 20XX, the executors disposed of the remainder of the furniture not wanted by family members.

On XX XXXX 20XX, the executors listed both properties for sale.

On XX XXXX 20XX, the executors entered a contract to sell Property A.

On XX XXXX 20XX, the executors entered a contract to sell Property B.

The properties were not sold to the same buyer.

On XX XXXX 20XX, Property A settled.

On XX XXXX 20XX, Property B settled.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

Summary

Having considered the relevant facts, we will not apply the discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension to the 2 year time limit for either Property A or Property B.

Detailed reasoning

A capital gain or capital loss may be disregarded where a capital gains tax (CGT) event happens to a dwelling you owned as trustee or beneficiary of the deceased estate.

For a dwelling acquired by the deceased before 19 September 1985, you will be entitled to a full exemption if your ownership interest ends within 2 years of the deceased's death.

For a dwelling acquired by the deceased after 19 September 1985, that was the deceased's main residence and not used to produce assessable income just before their death, you will be entitled to a full exemption if your ownership interest ends within 2 years of the deceased's death.

For both cases, your ownership interest ends at the time of settlement of the contract of sale.

In your case, the deceased acquired their first 50% ownership interest in both properties before 19 September 1985 as a joint tenant. The deceased subsequently inherited the other 50% interest and became sole owner of both properties when their partner passed on XX XXXX 20XX.

This means the deceased acquired 50% ownership interest in the properties before 19 September 1985 and 50% after 19 September 1985.

After the deceased passed away, the executors owned the properties as trustee of the estate. Property A was the deceased's main residence until just before they passed away and was not used to produce assessable income at that time. Property B was previously used to produce income and was not the main residence of the deceased.

Both properties were sold and settled more than 2 years after the deceased's death. Therefore, you require the Commissioner's discretion to extend the two-year period to be eligible for an exemption.

However, the executors are not eligible for the Commissioner's discretion for the estate's 50% ownership interest in Property B, which the deceased acquired on XX XXXX 20XX. This ownership interest was received after 19 September 1985 and was not main residence of the deceased. Therefore, you are only eligible for the Commissioner's discretion on the 50% of Property B, which was acquired by the deceased before 19 September 1985.

Practical Compliance Guideline PCG 2019/5 Capital gains tax and deceased estates - the Commissioner's discretion to extend the 2-year period to dispose of dwellings acquired from a deceased estateprovides guidance on factors we consider when deciding whether to grant the discretion.

Paragraph 3 of PCG 2019/5 provides that we will allow a longer period where the dwelling could not be sold and settled within 2 years of the deceased's death due to reasons beyond your control that existed for a significant portion of the first 2 years.

Paragraph 14 of PCG 2019/5 explains we weigh up all of the factors (both favourable and adverse). Paragraph 17 of PCG 2019/5 provides a list of other factors that may be relevant to the exercise of the Commissioner's discretion, which includes the sensitivity of your personal circumstances.

In your case, the executors provided the following reasons for the cause of delays to sell the property within the 2 year period:

•                     COVID-19 lockdowns affected their ability to travel and progress preparing the properties for sale. However, these restrictions ended within XX months of the deceased's death. Therefore, this reason did not exist for a significant portion of the first 2 years.

•                     The deceased hoarded items at both properties and it took significant time to clear and prepare the property for sale. The executors state they spent over 2 years clearing the property. We consider this an unreasonably long time given the size of the properties and the extent of hoarding.

•                     The travel time for the executors to attend the properties was a significant cause of delay when preparing the properties for sale. However, paragraph 13 of PCG 2019/5 provides that inconvenience on the part of the trustee to organise the sale of the dwelling is not a favourable factor.

We acknowledge the executors' personal circumstances affected their ability to prepare the property for sale at various times:

•                     On XX XXXX 20XX, Person A underwent surgical treatment for a medical condition.

•                     On XX XXXX 20XX, Person B underwent emergency surgery.

•                     On XX XXXX 20XX, Person B's spouse's parent died

•                     Person B is the full-time carer for their child who has a medical condition.

However, as there were 3 executors of the estate the other executors could have progressed the sale of the property.

We consider other adverse factors include:

•                     The executors chose to list the 2 properties together as they are adjoining properties with a shared boundary. This was a choice within their control in response to real estate agent advice to attract a developer rather than arrange the orderly sale of each property within 2 years.

•                     The executors held Property B for the convenience of short-term accommodation while clearing Property A. This choice was within the control of the executors.

Property A

Having considered the relevant facts, we will not apply the discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the 2 year time limit. Therefore, the normal CGT rules will apply to the disposal of Property A. You should note that the first element of your cost base for the property is its market value on the deceased's date of death. The cost of repairs can also be included in the cost base of Property A. You are also entitled to the 50% CGT discount in relation to Property A.

Property B

Having considered the relevant facts, we will not apply the discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the 2 year time limit. Therefore, the CGT rules will apply to the disposal of the property. You should note that the cost base for Property B will be separated.

The first element of your cost base for the 50% ownership interest acquired before 19 September 1985 will be its market value on the deceased's date of death. The first element of your cost base for the 50% ownership interest acquired after 19 September 1985 will be its market value on XX XXXX 20XX (the date the deceased acquired the other 50% interest and became sole owner of Property B).

The cost of repairs can also be included in the cost base of the property. You are also entitled to the 50% CGT discount in relation to the property.